Cambridge Software Corporation

2383 Words May 28th, 2009 10 Pages
CAMBRIDGE SOFTWARE CORPORATION

Cambridge Software Corporation is about to decide whether to offer multiple versions of Modeler, a new Lotus-1, 2, 3 compatible modeling software product. Software Market Research Group cooperating with Modeler Project team identified five segments as large, multidivisional corporations; corporate R&D and universities labs; consultant and professional companies; small businesses; and students. CSC has identified three versions to serve these segments. These versions are “Industrial”, “Commercial” and “Student” versions. The decision to be made are, if the company want to launch only one version of software which version should it offer, at what price and how many different versions of the Modeler should they
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Based on the calculations in Exhibit 2B, maximum price options are $2400, $1950 and $450. Among these options $1950 gives the highest net total contribution margin for the “Industrial” version, $12,655,000 (Exhibit 2C). The total net total contribution margin is turned out to be as $20,580,000 (Exhibit 2C) when the “Student” version is priced as $50 and the “Industrial” version is priced as $1,950.

In option 2, we target the consultants and professional companies; and small businesses with the “Commercial” version so it should be priced as $225 to make these segments buy this version. Considering this price as constant at $225, the price for “Industrial” version should be set to ensure the large, multidivisional corporations and corporate R&D and university labs to prefer “Industrial” version over “Commercial” version. The maximum price is the price which makes the consumer surplus of the “Industrial” version to be equal to the consumer surplus of “Commercial” version where the consumer will be indifferent between two options. Based on the calculations in Exhibit 2D, maximum price options are $1525, $1225 and $525. Among these options $525 gives the highest net total contribution margin for the “Industrial” version, $12,280,000 (Exhibit 2E). Since in the price option of $525, the consultants and professional companies may prefer the “Commercial” version which leads to a decrease in the total contribution, it is not determined as the optimal price. The total net
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